November 2009

Faculty Research Brief is a periodic report designed to inform the Stern community about new faculty research, new publications, awards and grants. Please send your research news to be considered for inclusion to paffairs@stern.nyu.edu.

Research

"Alexander Hamilton, Central Banker: Crisis Management During the US Financial Panic of 1792"
Henry Kaufman Professor of the History of Financial Institutions and Markets Richard Sylla, Clinical Associate Professor of Economics Robert E. Wright and David J. Cowen of the Museum of American Finance examine the crash of 1792 and Treasury Secretary Alexander Hamilton’s key role in overcoming panic in the financial markets.  Under Hamilton’s leadership in the 1790s, the federal government introduced a number of fiscal, debt, currency and central banking innovations. The authors document how Hamilton’s deft crisis management during Wall Street’s first crash restored confidence in the country’s nascent financial markets, allowing the economy to grow at unprecedented rates.  Two centuries later, current Federal Reserve Chairman Ben Bernanke could draw on a long history of central banking and crisis management techniques during the 2007-09 crisis and recession.  The article was recently summarized in the Wilson Quarterly’s review of notable articles.

Person Perception, Power and Status 
Joe Magee, Assistant Professor of Management at NYU Wagner and Affiliated Professor of Management and Organizations at Stern, with colleagues Daniel Ames and Emily Bianchi at Columbia University, uncover in new research how professed impressions (the impression one gleans from hearing what someone says about a third party) shape the listener’s view of the speaker’s status and power.  They find that listeners ascribe more power to speakers who discuss a third party’s conscientiousness, compared to those focusing on agreeableness.  The authors also discover that judgments of speakers’ status are based on how positively they describe third parties, regardless of the personality dimension on which their description is focused.

When Shopping, Consumers Flock Together, but Don’t Necessarily Buy 
Consumers are attracted to crowds in stores, but they are not likely to buy something from a crowded location, according to this study published in the Journal of Consumer Research by Assistant Professor of Marketing Sam Hui and his co-authors Eric T. Bradlow and Peter S. Fader, both of the University of Pennsylvania. In their paper, “Testing Behavioral Hypotheses Using an Integrated Model of Grocery Store Shopping Path and Purchase Behavior,” they analyzed tracking data from an electronic system called Pathtracker®, a device attached to the bottom of a shopping cart that emits a signal every five seconds to track shoppers’ paths. They matched the shopping cart paths with purchase records obtained from scanners to create complete records of consumers’ shopping trips. The data showed that although consumers are attracted to crowded store zones, they are less likely to make a purchase once they arrive. The authors also discovered that as people spend more time in a store, they begin to feel time-pressured and so they become more purposeful, spending less time on exploration, and instead focusing on visiting and shopping at store zones that carry categories they plan to buy.The researchers also confirmed a hypothesis posed by earlier researchers that after purchasing a “virtue” product, like a healthy food, people are more likely to purchase something from a “vice” category, like an unhealthy snack.

Money Managers: What Makes Some Better than Others?
As of the end of 2008, $9.6 trillion was invested with investment professionals in the US.  How can investors know their money is well managed?  In their paper, “Attention Allocation Over the Business Cycle: Evidence from the Mutual Fund Industry,” Finance Professors Marcin Kacperczyk and Stijn Van Nieuwerburgh, and Economics Professor Laura Veldkamp recommend picking money managers who shift their investment strategies over the course of the business cycle.  They identified the top 25 percent of actively managed equity mutual funds with respect to their stock-picking ability in expansionary periods and found that the same group has market-timing ability in recessions. They find that this group outperforms the other funds, in risk-adjusted terms and after expenses, and, in short, identified the most highly skilled investment managers. These managers shift strategy over the business cycle by investing based on macroeconomic information in recessionary times and investing based on microeconomic (stock-specific) information in expansionary times.  Their research also reveals that these managers are likely to run smaller, more actively managed funds, hold MBA degrees, and, later in their careers, move to a hedge fund.

"Onshore Immigrants Managing Offshored Software Development and Engineering Projects"
Natalia Levina, Associate Professor of Information Systems, and Aimée Kane, Assistant Professor of Management and Organizations, received the Organizational Communication and Information Systems (OCIS) division’s Caroline Dexter Award at the recent Academy of Management Conference. Their paper analyzes the growing trend of onshore companies hiring immigrants to manage complex software development projects offshored to the immigrants’ country of origin in an effort to effectively collaborate across national boundaries. This practice assumes that immigrant managers will enable effective collaboration by leveraging their bicultural backgrounds. Using data from interviews with onshore and offshore IT professionals, the professors illustrate that the practice of assigning onshore immigrant managers to boundary spanning roles is often problematic. While, by and large, immigrant managers are able to address coordination challenges, they are only willing to renegotiate status differences if they identify with offshore IT professionals. Those immigrants who no longer identify with the offshore group exhibit a profound lack of trust in and respect for offshore professionals, sometimes even refusing to speak their mother tongue.  

"Analyzing the Relationship Between Organic and Sponsored Search Advertising: Positive, Negative or Zero Interdependence?"
The phenomenon of paid search advertising has now become the most predominant form of online advertising in the marketing world with a market size of $10 billion. However, there is little understanding of the impact of search engine advertising on consumers’ responses in the presence of organic listings of the same firms. In this paper accepted for publication at Marketing Science, Anindya Ghose, Assistant Professor of Information, Operations and Management Sciences, and Sha Yang, Associate Professor of Marketing, model and estimate the inter-relationship between organic search listings and paid search advertisements using a unique panel dataset of consumer responses to keyword ads on Google. They show that click-throughs on organic listings have a positive interdependence with click-throughs on paid listings, and vice-versa. They also find that this positive interdependence is asymmetric such that the presence of organic listings increases click-throughs on sponsored ads by 3.5 times more than vice-versa. On average, this positive interdependence leads to an increase in expected profits for the firm ranging from 4.2 to 6.15 percent. To further validate their empirical results, they also conducted and presented the results from controlled field experiments. The results predicted by the econometric model are also corroborated in the field experiments, thereby demonstrating a causal interpretation of the positive interdependence between paid and organic search listings.

The Social Value of Word-of-Mouth Marketing Programs 
Professor of Marketing Eitan Muller, with co-authors Barak Libai of Recanati Graduate School of Business Administration at Tel Aviv University and Renana Peres of the School of Business Administration at Hebrew University of Jerusalem, quantify the monetary value of firms’ attempts to influence penetration of products and services via word-of-mouth programs. There are two ways in which customer word-of-mouth can create value: 1) through acquisition – helping the firm to acquire new customers who would not otherwise have bought the product; or 2) through acceleration – accelerating the purchases of customers who would have purchased anyway. The researchers investigate how acquisition and acceleration combine to create value in a word-of-mouth seeding program for a new product. To do so, they define the social value of a program as the global change, over the entire social system, in customer equity that can be attributed to the word-of-mouth of program participants. They compute the social value of programs in various scenarios to show how the presence of competition, program size and choice of program members affect the social value and the relative contributions of acquisition and acceleration to this value. They find that seeding programs can create considerable social value, largely influenced by the presence of competition in the market. In fact, for a program initiated by a single brand, the social value in the presence of competition is about four times that of its social value in a monopoly. In addition, a stronger brand benefits less than a weaker brand from the social value created by a word-of-mouth program. They also show that increasing the number of program members creates a diminishing return to social value, which can decline even beyond certain size levels. Finally, they find that while most of the social value created by a seeding program can be achieved using a random program, targeting influentials increases social value by about a third on average.

"Creditor Rights and Corporate Risk-Taking"
According to Professor of Finance Viral Acharya, with Ira Rennert Professor of Entrepreneurial Finance Yakov Amihud and Lubomir Litov from Washington University in St. Louis, strong creditor rights in bankruptcy may reduce corporate risk-taking, inducing costly risk avoidance and preventing a company from maximizing firm value.  In their paper, the authors analyze M&A behavior globally and find that firms in countries with strong creditor rights are more likely to diversify holdings, have lower cash flow risk and lower leverage.  The study finds the effects are particularly strong in countries where management is dismissed when the business fails.

Honors and Presentations

Julius Schlesinger Professor of Business Administration Michael Pinedo received a 2009 INFORMS Fellow Award, which recognizes outstanding achievements in five areas: education in the field of operations research/management science; management of operations research/management science, including responsibility for applying the profession’s techniques within an organization of any type; the practice of operations research/management science/analytics; research; and service to INFORMS and the profession of operations research.  Professor Pinedo won for his research contributions to scheduling and queueing theory and their application to manufacturing and services problems. 

Associate Professor of Marketing Amitav Chakravarti won the inaugural 2009 Google and WPP Marketing Research Award, which includes an unrestricted gift of $50,000 to study online and offline media interactions. Professor Chakravarti's research proposal for Google was based on his co-authored research paper, “The Neglect of Prescreening Information,” that was published in the Journal of Marketing Research. The research examines when exposure to online information hurts or aids offline buying behavior.

Nomura Professors of Finance Martin Gruber and Edwin Elton were recently recognized for their lifelong academic work in finance at a special session of the annual meeting of the Financial Management Association. Colleague Frank Reilly, finance professor at the University of Notre Dame, outlined their work, and former PhD students T. Clifton Green (PhD ’99), associate professor at Emory University; Mustafa Gultekin (PhD ’84), associate professor at the University of North Carolina; and George Comer (PhD ’01), associate professor at Georgetown University, shared personal stories spanning three decades of learning under Professors Gruber and Elton. Nobel prize winners Harry Markowitz and William Sharpe, who could not attend, wrote letters to honor the professors that were read at the meeting.     

At the recent Association for Consumer Research conference, Associate Professor of Marketing Tom Meyvis received a best reviewer award from the Journal of Consumer Research and Professor of Marketing Priya Raghubir received a best reviewer award from the Journal of Consumer Psychology.

Professor of Finance Viral Acharya, co-author of the book Restoring Financial Stability: How to Repair a Failed System, delivered an address entitled, “Too Big to Fail, Too Big to Manage or Just Too Big?” during a Central Banking Seminar at the New York Federal Reserve on October 19, 2009.